In early 2015, we started to track the number of loans funded by TrustBuddy’s latest acquisition Geldvoorelkaar (GVK). GVK was an important step for TrustBuddy; not only did it expand the company’s geographic reach, it also marked the establishment of a new business area, i.e. loans to small- and medium-sized enterprises (SME). No longer does TrustBuddy only focus on short-term consumer loans, which are frequently criticized by media and regulators. In fact, we argue that following the poor share price performance in recent months, GVK alone is worth at least double the market cap at which TrustBuddy as a whole is trading at right now.
GVK recently passed the EUR 53m mark in capital funded and there are no signs of slowing down. On the contrary, the Dutch government recently decided to remove the maximum cap for money to be invested in the crowdfunding campaigns (including P2P lending) as of 2016. During 2014, GVK increased its total amount lent by 67% during 2014 and reached a total of EUR 28,9m for the year and is the clear market leader in the country.
We know from the presentation material provided in connection with the acquisition, that GVK has a revenue margin on funded loans “approaching 6%”. In its base case forecast, TrustBuddy guided for 2015 lent out capital of EUR 46.7m and net sales of EUR 2.8m (around SEK 26m at current exchange rates). This included the Netherlands business only and does not take into consideration of the planned expansion to Belgium and the Nordics, which TrustBuddy has announced to start during H2 2015. Not to forget that GVK’s business is highly profitable with EBIT margins of around 35%, which would imply a 2015 EBIT for GVK of around SEK 9m.
If we were to completely disregard the value of TrustBuddy “classic” and Prestiamoci (which will be included once the company has received its license in Italy), we can make the following observation:
- GVK’s business is developing well and the company’s base guidance for 2015 sales of SEK 26m looks conservative. Assuming an EBIT margin of 35%, this implies an 2015 EBIT of SEK 9m. Further assuming a neutral financial net (actually there is a net cash position) and the Dutch corporate tax rate of 25%, this implies a 2015 net profit of SEK 6,75m for GVK.
- There are currently two alternative financing providers listed on the stock exchange, both in the US. Lending Club (LC) is currently trading at a 2015 EV/Sales multiple of 25x and a PE-ratio of 332x. OnDeck Capital (ONDK), is currently trading at a 2015 EV/Sales multiple of 7x. Analysts expect ONDK to report a loss for 2015 but for 2016, their estimates imply a PE-ratio of 39x.
- Applying the ONDK multiples on GVK, we get a fair enterprise value of SEK 182m and a market cap of SEK 263m (here we are actually using the 2016 PE-ratio since ONDK is expected to be loss making during 2015, i.e. we are deliberately conservative). We note that by valuing GVK in-line with ONDK multiples, we get a fair average value of SEK 222,5m, or around SEK 0,55 per share.
- Applying the LC multiples on GVK, we get a fair enterprise value of SEK 650m and a market cap of SEK 2241m. We note that by valuing GVK in-line with LC multiples, we get a fair average value of SEK 1445,5m, or around SEK 3,60 per share.
- GVK is growing faster and has a higher profitability than both ONDK and LC
- TrustBuddy is currently trading at SEK 0,65 per share, implying a market cap of SEK 264m.
To even the most sceptical investor, it should be obvious that TrustBuddy’s SME business GVK is right now making up for basically all of the company’s value. And this is actually only taking into consideration status quo, i.e. GVK’s business in the Netherlands. The company has announced that it will roll out SME loans in the Nordics and Belgium starting during H2 2015, so this should actually be added to the calculation above.
P2P lending has a tough standing in Sweden and TrustBuddy is regularly exposed to criticism by Swedish media and private individuals who object the rather high interest cost charged within the short-term consumer lending business. It has gone completely unnoticed that TrustBuddy has established a new business area with the acquisition of GVK. A third business area will be added as soon as Prestiamoci joins the group, which is expected to happen during April. Prestiamoci is active within long-term consumer lending.
We think that the P2P SME business was a brilliant investment for TrustBuddy and we look forward to the rollout in the Nordics and across Europe. Management has come a long way in restructuring the company. We would highly welcome insider purchases by top management and especially the newly appointed Board in order to show conviction into their strategy. This would give the market a needed sign of confidence which is currently completely missing in the share.